Spread betting company shares are down over 10% after the EU announced a crackdown

  • ESMA considering crackdown on binary options and CFDs.
  • Shares in IG Group, CMC Markets, and Plus500 all down close to 10%.

LONDON – Shares in spread betting companies are diving on Monday after the EU announced a crackdown on a controversial product offered by many of them.

The European Securities and Markets Authority (ESMA) on Friday announced it was considering banning binary options, a highly risky speculative investment product. ESMA also proposed limiting the marketing and leverage offered on contracts for difference (CFDs), another form of financial product offered to retail investors.

A review by the UK’s Financial Conduct Authority last year found that 82% of people who use binary options or CFDs lose money, suggesting it is more akin to gambling than investing.

IG Group, which is credited with investing CFDs, said on Monday that it stopped offering binary options in January 2017 but said it believed the leverage options being considered are “disproportionate.”

IG said the financial impact this year is “unlikely to be significant” but added: “It remains difficult to predict what impact regulatory change may have on the business in subsequent financial years.”

IG’s shares are down almost 10% at 2.00 p.m. GMT (9.00 a.m. ET):

CMC Markets is another listed company that markets CFD and binary options to retail customers. The company said on Monday: “Binary products generated £2.1 million of revenues from the UK and Europe in H1 18 and therefore any prohibition on the marketing of binary options to retail clients will be immaterial in a group context.

“Proposed margin changes are likely to have an impact on how clients trade, although at this stage it is not possible to quantify the impact.”

CMC Markets’ shares are down over 9% at 2.10 p.m. GMT (9.10 a.m. ET):

Israeli-headquartered trading company Plus500 is also falling on news of the ESMA crackdown. CEO Asaf Elimelech said in a statement: “Until details are finalised, it is difficult to assess the impact upon our business, however, as we have previously stated, we have a flexible business model, already provide many of the protections suggested by ESMA, and are well diversified globally, now with seven licenses in different jurisdictions following the recent licence approval in Singapore earlier this month.”

Plus500 is down almost 10% too:

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